Column: Kids, learn your math

In the way of all interest groups, we professors are always telling politicians, the media and anyone else who will listen that there’s a big economic payoff to education, both for those who become educated and also for the society at large. More public money for us, we invariably conclude, would therefore be a very wise thing.

In the way of all interest groups, we professors are always telling politicians, the media and anyone else who will listen that there’s a big economic payoff to education, both for those who become educated and also for the society at large. More public money for us, we invariably conclude, would therefore be a very wise thing. And in fact many studies, not all of them performed by professors, conclude that more educated people do make higher salaries and experience less unemployment.

But what is it about education that has that effect? Is it just the networking? Is it that the education system filters, sorts and ranks people according to skills they mainly already have? Or does education actually teach people skills that have value in the marketplace and therefore lead to higher incomes for them and greater output for the society at large?

A new study by four economists led by Eric Hanushek of Stanford University and the Hoover Institution doesn’t try to answer all those questions but, using a big new OECD database, it does focus on the link between skills and earnings. It contains lots of interesting conclusions with highly nuanced implications but if you had to boil it all down to four words, they would be “Kids! Learn your math” — though for Canada there’s an interesting twist on that conclusion.

The OECD — the club of rich countries — has been interested in skills for some time. In 2011-12 it tested 34,447 people in 22 countries on their literacy, numeracy and problem-solving skills. That’s right, it asked them what were literally “skill-testing questions.” It also asked them about themselves, collecting data on their incomes, education, age, work experience, marital status, parents’ education, and so on.

The obvious next step, which Hanushek and his group take, is to try to figure out how much people’s skills correlate with their wages. It’s not an easy problem: Lots of things influence what people earn. But the four economists are all extremely numerate (and, not to give the game away, therefore probably also well paid) and they use econometric techniques to try to tease out the skills/earnings relationship.

What they find is that of the three types of skills, numeracy seems the most important. To get an idea of the longer-term effects of skills they looked at the correlations for “prime-age” workers (those aged 35 through 54) working full time (except, as it happens, in Canada, where for reasons they don’t explain part-time workers were also included in the data).

In the countries studied these prime-age workers’ average score on the numeracy test was 279 out of 500. Workers who did one standard deviation better — a numeracy concept that in this example works out to about 50 points — had wages that were almost 18 per cent higher. That’s the result for all the countries together. In Canada the return to extra numeracy was 19.3 per cent. In the U.S. it was a remarkable and sample-highest 27.9 per cent.

The return to math was lowest in Sweden (12.1 per cent), the Czech Republic (12.4), Norway (12.7) and Italy (13.2). Actually, it’s not a “return” in the usual economic sense that “this investment pays a return of X per cent.” Economists regularly do such calculations: Given the cost of a university education, what’s the financial rate of return on that investment once the higher lifetime earnings of graduates are taken into account? But in this study, unfortunately, the authors don’t know the cost of acquiring the extra skill that leads to higher earnings.

In general, though not everywhere, numeracy had only a slightly higher payoff than literacy. The return to literacy for the whole sample was 17.1 per cent. In this country it was 19.2 per cent, basically identical to that for numeracy. In the U.S. it was 27.1 per cent, not quite as high as for numeracy but high nevertheless and, again, highest in the sample of countries.

What’s surprising about the study is that scoring well at problem-solving doesn’t have as big an effect in explaining the variation in wages. That runs counter to a lot of how-to-succeed-in-business books that stress problem-solving. Maybe if you’re literate and numerate, problem-solving takes care of itself. Or it could be that the OECD’s test doesn’t capture the essence of problem-solving and therefore isn’t able to assess its influence accurately.

In any case, when all three skills are considered at the same time, numeracy edges out literacy just slightly and each is about twice as important as problem-solving.

That result is for the 22 countries as a whole. There are interesting differences across countries, however. In this country, literacy actually has a bigger effect in explaining wages, by a ratio of about 3 to 2, than numeracy does, while problem-solving counts for almost nothing. In the U.S., by contrast, numeracy dominates problem-solving by about 2 to 1, while literacy has virtually no effect on wages.

Luckily, the authors warn that because of small sample sizes the results for individual countries aren’t that reliable. Otherwise, with our bigger payoff to literacy, we’d be likely to conclude, as we’ve always assumed, that we are the more sophisticated North Americans.

Comments

We encourage all readers to share their views on our articles and blog posts. We are committed to maintaining a lively but civil forum for discussion, so we ask you to avoid personal attacks, and please keep your comments relevant and respectful. If you encounter a comment that is abusive, click the "X" in the upper right corner of the comment box to report spam or abuse. We are using Facebook commenting. Visit our FAQ page for more information.